The 'Big Three'—Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries and Samsung Heavy Industries—hold $42.1 billion in loans between them, according to local media reports. The firms closed out 2015 with combined losses of more than $6 billion, their earnings reports revealed.
It's a sharp deterioration for the sector, which accounts for 6.5 percent of gross domestic product. Shipbuilders have traditionally been a source of pride for the economy, having played a key role in national industrialization following World War II and accounting for around 200,000 jobs.
"The build-up of debt in Korean shipbuilders is not a Korean-specific problem but an issue regionally as shipbuilders face lower demand. This is symptomatic of weak global trade and Korea is very trade-exposed," explained Trinh Nguyen, senior economist at investment bank Natixis.
In April, South Korea registered its 16th straight month of falling exports.
But debt isn't the only issue plaguing firms.
"Market participants now expect a further decline in capacity utilization in the shipbuilding sector, with the level having already fallen to around 60 percent of the previous peak. Large losses seen by major shipbuilding companies due to the troubles in marine plants are raising further concern about the sector," said Suktae Oh, Korea economist at Societe Generale, in a recent report.
The issue is magnified by the fact that shipbuilders are facing a shrinking pool of liquidity, further increasing the risk of defaults.